Will revenue projections hold up over fiscal year?

HARRISBURG - The ink is barely dry on the new $29 billion state budget, but spending cuts or freezes to keep it balanced loom.

Interest groups frequently point to line-item victories when a budget is signed. But the response has been muted this year because people don't want to put too much stock in what could be taken away.

The concern expressed by everyone from Budget Secretary Charles Zogby to county commissioners is that the revenue projections supporting the spending won't hold up completely over the fiscal year.

The budget relies on overly optimistic estimates of tax revenue coming in and takes money from state funds set aside for special purposes, said state Auditor General Eugene DePasquale, a Democrat. An enormous budget deficit will become evident in six months to nine months, he added.

A revenue shortfall would leave the governor in office as of January, either incumbent Republican Tom Corbett or Democratic challenger Tom Wolf, with tough decisions to make to adjust spending.

It has happened twice during the past four years, a reflection of Pennsylvania's chronic fiscal problems since the 2008 nationwide recession.

Both Corbett and his predecessor Democratic Gov. Ed Rendell in early 2012 and 2010, respectively, cut more than $150 million in spending to offset revenue shortfalls.

Sometimes the cuts are described as freezes or placing money in budgetary reserve.

But the result is the same because the money isn't coming back, said Gary Drapek, president of the United Way of Lackawanna and Wayne Counties. The Human Services Development Fund, used to fund county safety net programs, got hit during the cuts in 2012 and 2010.

These cuts ultimately affect individuals - the senior citizen in Olyphant depending on Meals on Wheels or the mentally disabled person who loses services and then regresses, said Drapek.

He said social service agencies plan on having the budgeted dollars to provide services and are forced to cancel them if cuts are made. After six years of fiscal problems, few have reserves to draw on or lines of credit, he said.

The problem with having a budget that doesn't add up is the governor has sole power to decide where to order cuts to balance it, said DePasquale.

"There's no checks and balances," he said.

This budget is largely the product of House and Senate Republican leaders. Corbett didn't sign off on the final deal and vetoed nearly $100 million, mostly in legislative spending, when he signed it.

Pennsylvania wrestled with a $1.5 billion revenue problem this spring. The budget keeps the spending in check and avoids hiking the state cigarette tax or levying a severance tax on natural gas production, said GOP leaders.

"Facing a deficit that exceeded $1 billion, we were able to craft this budget by transferring excess balances from existing state funds," said House Speaker Sam Smith, R-66, Punxsutawney. "As opposed to imposing new or expanded taxes that could have a detrimental impact on the state's economy, we chose to live within our means by reallocating funds in current accounts to cover our spending priorities."

The supporting revenue estimate is higher than what the state Independent Fiscal Office has predicted, but that's based on the fact that revenues during June were significantly stronger than originally anticipated, said Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, R-9, Chester.

The budget is taped together with quick fixes, said the Pennsylvania Budget and Policy Center, a Harrisburg think tank that advocates for a severance tax.

For example, the center points to an assumption that unspent money from the prior budget will total more than $400 million instead of the normal range of $100 to $150 million.

The Commonwealth Foundation, a free-market, conservative think tank, said relying on fund transfers and one-time revenue sources is not sustainable. The budget shields taxpayers, but action is needed to reduce public pension costs, according to the foundation.

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